If the Debt Ceiling is Unconstitutional, How Would Anyone Know?

Garrett Epps thinks that the debt ceiling is unconstitutional; Bruce Bartlett agrees.  I’m not so sure; the question would turn on whether appropriations and entitlements that the Treasury would need to borrow to pay for would be regarded as “public debt” within the meaning of Section 4 of the Fourteenth Amendment.  You could argue it both ways.

But if the administration takes the position that it must continue to borrow to comply with the Fourteenth Amendment, who would stop it?  Put another way, who would have standing to sue?  Taxpayers clearly would not.  Individual members of Congress?  No: the Supreme Court’s 1997 decision in Raines v. Byrd would seem to foreclose that.  Congress as a whole?  Perhaps; but what would it require for Congress as a whole to bring the lawsuit?  A joint resolution would be blocked by Senate Democrats.  That leaves the House to bring the lawsuit, and one could easily argue that one house would not have standing any more than individual members of Congress would.

I think that Raines, and really the whole line of conservative standing decisions in the last two decades, were wrongly decided.  But that’s what conservatives get by trying to slam the courthouse door shut.  The right-wing judicial activists that now populate the Supreme Court have little compunction in violating precedent, even precedent of their own making, that do not comport with their policy preferences, and perhaps this will be another example of it.  But there is a pretty strong argument that if the Treasury just goes ahead and blows through the debt ceiling on constitutional grounds, the courts will rule that no one has standing to challenge them.  I’m looking forward to John Yoo having a tantrum about executive overreach.

Author: Jonathan Zasloff

Jonathan Zasloff teaches Torts, Land Use, Environmental Law, Comparative Urban Planning Law, Legal History, and Public Policy Clinic - Land Use, the Environment and Local Government. He grew up and still lives in the San Fernando Valley, about which he remains immensely proud (to the mystification of his friends and colleagues). After graduating from Yale Law School, and while clerking for a federal appeals court judge in Boston, he decided to return to Los Angeles shortly after the January 1994 Northridge earthquake, reasoning that he would gladly risk tremors in order to avoid the average New England wind chill temperature of negative 55 degrees. Professor Zasloff has a keen interest in world politics; he holds a PhD in the history of American foreign policy from Harvard and an M.Phil. in International Relations from Cambridge University. Much of his recent work concerns the influence of lawyers and legalism in US external relations, and has published articles on these subjects in the New York University Law Review and the Yale Law Journal. More generally, his recent interests focus on the response of public institutions to social problems, and the role of ideology in framing policy responses. Professor Zasloff has long been active in state and local politics and policy. He recently co-authored an article discussing the relationship of Proposition 13 (California's landmark tax limitation initiative) and school finance reform, and served for several years as a senior policy advisor to the Speaker of California Assembly. His practice background reflects these interests: for two years, he represented welfare recipients attempting to obtain child care benefits and microbusinesses in low income areas. He then practiced for two more years at one of Los Angeles' leading public interest environmental and land use firms, challenging poorly planned development and working to expand the network of the city's urban park system. He currently serves as a member of the boards of the Santa Monica Mountains Conservancy (a state agency charged with purchasing and protecting open space), the Los Angeles Center for Law and Justice (the leading legal service firm for low-income clients in east Los Angeles), and Friends of Israel's Environment. Professor Zasloff's other major activity consists in explaining the Triangle Offense to his very patient wife, Kathy.

27 thoughts on “If the Debt Ceiling is Unconstitutional, How Would Anyone Know?”

  1. It does rather seem an elbow worth throwing.

    But the president should also declare that he’s going to raise some taxes to cut the deficit … in a little while when the “recovery” looks stronger. He’s already said he won’t extend the Bush tax cuts again. It is one thing to say you’re an adult, and another to act in accordance with it.

  2. If the debt ceiling exists it’s Constitutional. I would say it doesn’t exist–that various spending bills and other legislation passed later in time than the debt ceiling implicitly assume that the funds necessary to carry out such legislation will be borrowed if needed and that Congress as a sovereign entity can not, by passing a debt ceiling, bind its future acts to that ceiling. But if it exists then all you need to do to get around the 14th Amendment problem is to read the debt ceiling as implicitly authorizing the Treasury to print money to pay back debt principle as it comes due if rolling over the debt would violate the ceiling.

  3. If the debt ceiling limit law is unconstitutional, wouldn’t it be the Obama Administration that would be challenging it?

    It seems that the proposal here is that the Obama Administration could instead just ignore the law, and take advantage of the fact that Congress is not currently organized in a way such that there would be a judicial challenge to that action.

    Wouldn’t that pretty Nixon-ian?

  4. If they play it this way, there will be an obvious burst of outrage, but I don’t think that outrage would ultimately be sustainable. Things would be going fine, as they always did, and the details would end up too technical for people to remain upset over. And then it would just become the way business is done. (Can you imagine a Republican administration reversing this sort of precedent? I sure can’t.)

    All much preferable to a global economic crisis and the quick termination of the dollar as global reserve currency.

  5. Fascinating.

    So then, the White House really does have a Plan B:
    The Treasury just goes ahead and blows through the debt ceiling on constitutional grounds…

    Sounds good to me.
    And can we flip the bird at our teabag brothers at the same time? Just for art’s sake?

  6. What I never see mentioned is, what obligates the Treasury to issue debt in the first place? We talk about spending appropriations and debt limits, but where does it say that spending requires debt issuance? That is, why can’t the Treasury just continue to spend, without issuing bonds, essentially creating money? We do have fiat money after all.

    I assume there is a law on this somewhere, but I have never heard about it and can’t find it. And I don’t understand, why does this law take precedence over the appropriations and debt limit which contradict it? It seems like it would be the oldest, unless it’s continually updated, so it would be the one to go. Does anyone know?

    (cross posted elsewhere, as I’m trying to find an answer)

  7. Declaring the debt ceiling unconstitutional may be what conservatives get, but what we’ll all get is impeachment in the house. Lawsuits would take far too long for these peoples’ tastes and I don’t see how Boehner would be able to forestall it. And some of these people have been itching to do it since November of 2008.

    Of course the senate would never convict. So the net result would be a further expansion of the executive’s ability to ignore congress.

  8. @ Anonymous

    The Treasury doesn’t create money, the Federal Reserve creates money. The Treasury lays its hands on money by issuing Treasury notes and bonds. That’s apparently the way it works in a fractional reserve system. Money is created by loans from banks (and ultimately, the Fed is the source of all loans) and destroyed when the loans are paid off (again, ultimately it’s the Fed that is paid off). The fractional reserve requirement is intended to keep banks from getting too speculative and requiring them to keep sufficient deposits on hand to meet reasonable demands for currency.

    We saw how well the reserve requirement kept the banks’ collective noses clean a couple of years ago, didn’t we? Although in fairness, the commercial banks (and particularly the commercial banks not headquartered in New York) didn’t get in much trouble. That’s especially if you compare their performance to the investment banks.

  9. Couldn’t the administration also argue that the budget, which I’m pretty sure post dates the debt ceiling legislation, and the current tax code requires spending in excess of revenues and therefore requires borrowing? Then further argue that the more recent law, the budget, takes precedence and so, under current law, the Treasury is required to continue borrowing. If Congress wants to stop this borrowing then it needs to pass further legislation. I’m no expert on these matters, so this is just speculation on my part.

  10. Perry v. United States, 294 U. S. 330 (1935):

    “By virtue of the power to borrow money “on the credit of the United States,” the Congress is authorized to pledge that credit as an assurance of payment as stipulated, as the highest assurance the government can give — its plighted faith. To say that the Congress may withdraw or ignore that pledge is to assume that the Constitution contemplates a vain promise, a pledge having no other sanction than the pleasure and convenience of the pledgor. This Court has given no sanction to such a conception of the obligations of our government…

    “The Constitution gives to the Congress the power to borrow money on the credit of the United States, an unqualified power, a power vital to the government, upon which in an extremity its very life may depend. The binding quality of the promise of the United States is of the essence of the credit which is so pledged. Having this power to authorize the issue of definite obligations for the payment of money borrowed, the Congress has not been vested with authority to alter or destroy those obligations.”

    http://supreme.justia.com/us/294/330/case.html

  11. The 14th amendment does seem pretty clear on this. By including bounties and other debts incurred by legislation or executive order rather than simply by issuing of Treasury bonds, it seems to render the current ceiling unconstitutional on an as-applied if not facial basis. But what’s the text of the debt-ceiling law? Does it limit total indebtedness of the federal government, Treasury borrowings, total external indebtedness, or what?

    The internal-vs-external indebtedness question opens up another possibility for bold action — could the executive branch simply transfer ownership of other government assets, say the capitol and congressional office buildings, to the SSA or the Fed or some other organization in return for the bonds they currently hold?

  12. Interesting stuff, but it seems to me the “authority” we’d all be worrying about as the clock ticked past midnight on Default Day wouldn’t be the Supreme Court, but our bond customers. By the time we got through parsing all the fascinating legal issues, wouldn’t we be issuing 20% bonds anyway? The financial world isn’t going to end on Aug. 3 because someone got paid a day late on their 10-year Treasury notes; it’s going to end because of the pall of uncertainty that would cast over every subsequent promissory note the U.S. government issued.

    The amazing (and extremely fortunate!) thing about this situation is that the markets have essentially agreed not to freak out until 12:00:01 a.m. on Aug. 3–we’ve got them so conditioned to our shenanigans that nobody is pricing any of this in, no matter how crazy Republicans are sounding. We crossed the first threshold the other day and yields went down (and they’re already incredibly low). But I think even a microsecond of constitutional limbo would be enough uncertainty to push this into a whole other category of uncertainty, one that would take the form of incredibly high yields on these debatably legitimate bonds.

  13. I’m no lawyer, but when I look at the relevant section of the 14th amendment, what I see is a statement about Union debts incurred to suppress the rebellion: they’ll always be legitimate no matter what a future congress might want to say. Granted that the main clause of the sentence is pretty categorical (debts authorized by law shall not be questioned), the subordinate clause and other issues covered in that section are all about Civil War financing. This section was why, for example, late nineteenth-century Democrats (with their strong base in the South) couldn’t do anything about increasingly generous pensions to Union veterans, surviving widows, etc. (They were paid until quite recently, I think.) And why Confederate bonds and currency are wallpaper.

    Am I wrong to think that even a friendly court would really have to strain to hold that this section covers the debt ceiling? Tom Hickey’s citations here seem much more germane, imho.

  14. Perry v. US, again

    Page 294 U. S. 354

    “The Fourteenth Amendment, in its fourth section, explicitly declares: “The validity of the public debt of the United States, authorized by law, . . . shall not be questioned.” While this provision was undoubtedly inspired by the desire to put beyond question the obligations of the government issued during the Civil War, its language indicates a broader connotation. We regard it as confirmatory of a fundamental principle which applies as well to the government bonds in question, and to others duly authorized by the Congress, as to those issued before the Amendment was adopted. Nor can we perceive any reason for not considering the expression “the validity of the public debt” as embracing whatever concerns the integrity of the public obligations.”

    “We conclude that the Joint Resolution of June 5, 1933, insofar as it attempted to override the obligation created by the bond in suit, went beyond the congressional power.”

    There is little doubt that the debt ceiling is unconstitutional based on the precedent set by Perry. Of course, the Roberts court could overturn or modify that precedent.

    http://supreme.justia.com/us/294/330/case.html#354

  15. “the public debt of the United States, authorized by law”; Isn’t the debt ceiling a binding law declaring that any debt beyond it’s limit isn’t “authorized by law”, but instead expressly prohibited by it?

    I wish I could say I’m surprised by Democrats responding to losing control of one house, and their impending loss of the other, by rationalizing dictatorship by the Executive, the one branch they do hold. But I’m not.

  16. “Isn’t the debt ceiling a binding law declaring that any debt beyond it’s limit isn’t ‘authorized by law’?”

    The issue is that Congress previously approved legally binding commitments that it is currently reneging on. SCOTUS has said that Congress does not have this option to renege on prior US obligations according to the court’s constitutional interpretation in Perry v. US. The debt ceiling is not about undertaking future obligations here, it is rather meeting current obligations.

  17. I gather you don’t understand the difference between authorizing spending, and mandating it?

    All this is just rationalization for the President to incur debts beyond the debt limit, in the teeth of the law, and his constitutional obligation to see those laws upheld.

  18. Brett, the US Constitution specifies appropriation as a power of the legislature. Article one, Section nine, Clause seven of the U.S. Constitution: “No money shall be drawn from the treasury, but in consequence of appropriations made by law; and a regular statement and account of receipts and expenditures of all public money shall be published from time to time.The president can veto appropriations but the veto is subject to a congressional override. Neither the president nor the Treasury can authorize expenditure that has not been previously appropriated by the legislature.” The president cannot “mandate spending.” The executive executes the law and does not make it. The president can request that congress legislate a preferred policy, but he president as no power of congress in this regard.

  19. No, the President can not mandate spending. Nor did I suggest he could. Congress can. However, and not incidentally, Congress generally authorizes, rather than mandates spending, meaning that Presidents are not generally obligated to spend every cent that Congress has given them permission to spend.

    So, up against the debt ceiling, it is illegal for the President to further expand the debt, by explicit law. It is NOT illegal for him to refrain from spending more than the government is taking in.

    Indulge in sophistry all you like, everybody recognizes it for what it is.

  20. Dennis, what happened in 2008 was NOT a problem with the fractional reserve requirement, it was a problem with banks overleveraging their assets.

    Fractional reserve banking, at a very basic level, requires that a bank has to have X% of the money it loans to its customers as reserves. The percentage varies depending on the size of the bank; there is none for very small banks with less than 10.7 million in net transactions and goes up to 10% for the largest banks.

    Assets being overleveraged is a different phenomenon: Asset leverage is the ratio between your total assets and shareholder equity; in 2008, lots of banks were overleveraged, in particular branching out into risky ventures with potentially big returns, meaning most of their “assets” were actually the Wall Street version of monopoly money with no actual value. That’s different from fractional reserve banking in that fractional reserve banking compares two sides of the balance sheet (assets vs. loans) while leverage compares items on the same side of the balance sheet (assets vs. assets).

    Simply put, Lehman Brothers and Hypo Real Estate collapsed as firms, first and foremost, because they had engaged in risky investment. Because they were also big banks their bankruptcies then sent shockwaves through the financial market. This is also why commercial banks were largely unaffected (other than how a recession will affect all banks), even though they had technically lower reserve requirements than the huge investment banks (note that many small banks do in fact often have a very high reserve, too, but that is largely unrelated to why they didn’t experience the same troubles as Lehman Brothers; the main difference was that they didn’t gamble their assets away).

  21. Oh, and I might point out one area for potential savings, which would unambigously be constitutional: Obama is currently prosecuting a war in Libya, which Congress never authorized, under the pretense that the war powers act applied. (It didn’t, because we were under no threat of attack from Libya.) Well, we passed an important date recently: It’s now been 90 days since Obama started his war, and even under the terms of the war powers act, a President has only 90 days to fight a war without getting Congress’s permission. Which he hasn’t even bothered to ask for.

    So, obviously, he could reduce spending without violating the Constitution. He could reduce it by ceasing to violate the Constitution.

    He won’t, though, and we won’t see ‘liberals’ complaining that he’s a war criminal. Even though any basis for claiming he isn’t has now elapsed.

  22. I’ll tell you who would have standing to sue: bondholders who fear that their bonds will be repudiated by Congress as illegal, and thus fear that they may have been defrauded by the Treasury Department issuing what are, in effect, counterfeit bonds. They have every reason to fear that Congress will say, “The Treasury Department has issued these bonds in violation of the law, and therefore we do not recognize them as a legitimate debt, and we expressly forbid money from being spent to repay them.” This would be in conjunction with articles of impeachment on the charges of fraud and usurpation of Congress.

  23. Impeachment would be the most effective Republican political strategy should Obama allow August 3 to pass without a debt extension.

    “High crimes and misdemeanors” are defined only in the articles of impeachment as determined by simple majority vote in the House. Conviction is determined only by two thirds majority vote in the Senate, presided over by the Chief Justice. As Elliot Richardson claimed during the Nixon episode, all you need for impeachment are the votes.

    Impeachment is purely a political process. It’s in the constitution to provide a means for removal of an unpopular president without waiting for re-election time.

  24. I think there are grounds for arguing that the validity of the public debt refers only to the Civil War.

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